Feb. 25 (Bloomberg) -- Poland will post the fastest growth
this year among the European Union’s largest former communist
members as falling unemployment and slow inflation fuel domestic
demand, the European Commission said.

Poland’s economy will expand 2.9 percent this year and 3.1
percent in 2015, faster than last year’s 1.6 percent, the
commission said today in its winter forecasts in Brussels. The
2014 estimate for Poland is the third-fastest in the EU behind
Latvia and Lithuania. The Czech and Hungarian economies will
grow 1.8 percent and 2.1 percent this year, the report showed.

Eastern Europe’s growth is picking up pace as a recovery
strengthens in the euro area, which buys the bulk of the
region’s goods. Improving employment prospects and looser credit
conditions are also making consumers more confident to spend.

“The improving economic outlook in the main trading
partners and the resulting pick-up in Polish exports are set to
invigorate private investment and the labor market, which in
turn is expected to support the recovery of private
consumption,” the commission said. The forecasts are “slightly
above current estimates of potential output growth.”

As growth gathers speed and companies add workers, Polish
unemployment will fall to 10.1 percent by 2015 from 10.4 percent
last year, bolstering disposable incomes, according to the
report. Inflation will be an average 1.4 percent this year and 2
percent next, compared with 0.8 percent in 2013.

Fastest Growth

Latvia will grow 4.2 percent this year, the EU’s fastest
rate, followed by Lithuania with 3.5 percent, the commission
said. The pair will grow 4.3 percent and 3.9 percent in 2015.

The Czech economy, the second biggest after Poland in the
EU’s east, will grow 2.2 percent next year, while Hungarian
expansion will remain at 2.1 percent, the commission said.

The export-led Czech economy will benefit from a pickup of
business confidence in the neighboring euro region and the Czech
central bank’s policy to weaken the koruna, according to the
report. Domestic demand will strengthen “appreciably” next
year as the labor market improves, the commission said.

Growth in Hungary, the EU’s third-largest eastern economy,
will be driven by an improvement in domestic demand as the
lowest inflation in more than four decades boosts disposable
incomes.

“Yearly household consumption is expected to return to
positive territory from 2014 due to further improvements in real
disposable income, partly linked to the regulated price cuts and
increasing public sector wages, but also looser lending
conditions as a consequence of new subsidized mortgage
schemes,” the commission said.

Inflation will slow further this year to 1.2 percent from
1.7 percent in 2013 before picking up to 2.8 percent next year,
the commission said.